?Mexico Mike?
This year has been a difficult one for investors in the PM sector, and that makes it difficult to narrow down a list of just 5 companies, from all of the great juniors that are currently priced in what I believe is rock-bottom bargain basement territory. Before I discuss my list, allow me to outline how I select these companies, and the underlying assumptions that form the basis for my outlook.

I have an extremely high risk tolerance and do not feel much in the way of anxiety when the markets go through prolonged corrective episodes. While these top lists are presented on a yearly basis, in most cases the companies that I buy I will hold for many years, and the development cycle may extend well beyond even that. As investors, we can do all the homework to review the information on the public record, but we cannot pretend to know the future.

The mining sector is a tiny one, and the performance of these companies is as much dependant on investor sentiment as it is on the fundamentals for each company. If investors avoid the sector, then it is likely that even the top performing companies will disappoint. The sector is also notorious for violent swings in sentiment, and what is shunned on one day could be the next hot stock a month later. So rather than just track the market price of a stock, one must track the progress of an individual company up the value curve, to determine if that company has been successful. Many times one can find a stock that is an exceptional story yet the stock price is mired in the lows for the year. That is what I look to for when I am researching. Value is ultimately recognized and priced into a stock, but sometimes you have to wait it out.

Just about any junior is capable of delivering gains of several hundred percent over a short time frame. But I am not interested in gambling. I want a company that will have solid projects underway, ample funding at hand, and reliable management to direct development. I focus on late stage development plays and growing producers, even though the market may not be particularly excited with these companies at the current time. The payoff is in security of my investment and the knowledge that they will be the top stories as the cycle matures, and I still can expect a strong performance while I wait.

I am invested in the mining sector because I am bullish on the long term outlook for the metals. There is no reason to own gold or silver stocks if you believe that the metals have peaked. Mining is a miserable business and most companies lose money most of the time. Setbacks and delays are the norm. Investor sentiment is unpredictable and analysts are skittish. So the only reason to be positioned is to catch that time when the fundamentals line up and the metals are on a roll.

In 2007 we enjoyed gains in gold and silver prices, yet most of the juniors with leverage to these metals lost value. As investors positioned to catch the bull market, we were right in our sector assumptions, but wrong on our timing. This same set of circumstances could continue into 2008 but I remain bullish. I believe both gold and silver will set new all-time highs, along with oil, copper, and many other commodities. As the commodities continue to appreciate, at some point the stocks will catch up. I also look for consolidation within the mining sector, and hostile takeovers may ignite more speculative participation from investors. In short, I am not discouraged by the crappy performance from 2007.